Chapter 6 The Socialism of Social Engineering and The Foundations of Economic Analysis

In light of the theoretical arguments presented in the preceding chapters it appears that there is no economic justification for socialism. Socialism promised to bring more economic prosperity to the people than capitalism, and much of its popularity is based on this promise. The arguments brought forward, though, have proved that the opposite is true. It has been shown that Russian-type socialism, characterized by nationalized or socialized means of production, necessarily involves economic waste since no prices for factors of production would exist (because means of production would not be allowed to be bought or sold), and hence no cost-accounting (which is the means for directing scarce resources with alternative uses into the most value-productive lines of production) could be accomplished. And as regards social-democratic and conservative socialism, it has been demonstrated that in any event, both imply a rise in the costs of production and, mutatis mutandis, a decline in the costs of its alternative, i.e., non-production or black-market production, and so would lead to a relative reduction in the production of wealth, since both versions of socialism establish an incentive structure that (compared to a capitalist system) relatively favors nonproducers and noncontractors over producers and contractors of goods, products and services.

Experience, too, supports this. By and large, living standards in the East European countries are significantly lower than in Western Europe, where the degree to which the socialization of means of production that has taken place, though certainly remarkable, is relatively much lower. Also, wherever one extends the degree of redistributive measures and the proportion of produced wealth that is redistributed is increased, as, for instance, in West Germany during the 1970s under social-democratic liberal government coalitions, there is a retardation in the social production of wealth or even an absolute reduction in the general standard of living. And wherever a society wants to preserve the status quo, that is, a given income and wealth distribution, by means of price controls, regulations, and behavioral controls—as, for instance, in Hitler’s Germany or present-day Italy and France—the living standards will constantly fall further behind those of more liberal (capitalist) societies.

Nonetheless, socialism is very much alive and well, even in the West where social-democratic socialism and conservatism have remained powerful ideologies. How could this come about? One important factor is that its adherents abandoned the original idea of socialism's economic superiority and instead, resorted to a completely different argument: that socialism might not be economically superior but is morally preferable. This claim will be considered in Chapter 7. But that is certainly not the end of the story. Socialism has even regained strength in the field of economics. This became possible because socialism combined its forces with the ideology of empiricism, which traditionally has been strong in the Anglo-Saxon world and which, in particular through the influence of the so-called Vienna-circle of positivist philosophers, became the dominant philosophy-epistemology-methodology of the twentieth century, not only in the field of the natural sciences but also in the social sciences and economics. This applies not only to the philosophers and methodologists of these sciences (who, incidentally, have since freed themselves from the spell of empiricism and positivism) but probably even more so to the practitioners (who are still very much under its influence). Combining its force with empiricism or positivism, which includes for our purposes the so-called critical rationalism of K. R. Popper and his followers, socialism developed into what will henceforth be called the “socialism of social engineering.”⁸⁶ It is a form of socialism very different in its style of reasoning from traditional Marxism, which was much more rationalistic and deductive—one that Marx had adopted from the classical economist D. Ricardo, the most important source for Marx’s own economic writings. But it seems to be precisely because of this difference in style that the socialism of social-engineering has been able to win more and more support from the traditional camps of social-democratic and conservative socialists. In West Germany, for instance, the ideology of “piecemeal social engineering,” as K. R. Popper has called his social philosophy,⁸⁷ has now become something like the common ground of “moderates” in all political parties, and only doctrinaires, so it seems, of either side do not subscribe to it. The former SPD-chancellor Helmut Schmidt even publicly endorsed Popperianism as his own philosophy.⁸⁸ However, it is in the United States that this philosophy is probably more deeply rooted, as it is almost custom-tailored to the American way of thinking in terms of practical problems and pragmatic methods and solutions.

How could empiricism-positivism help save socialism? On a highly abstract level the answer should be clear. Empiricism-positivism must be able to provide reasons why all the arguments given so far have failed to be decisive; it must try to prove how one can avoid drawing the conclusions that I have drawn and still claim to be rational and to operate in accordance with the rules of scientific inquiry. But how, in detail, can this be accomplished? On this the philosophy of empiricism and positivism offers two seemingly plausible arguments. The first and indeed the most central of its tenets is this:⁸⁹ knowledge regarding reality, which is called empirical knowledge, must be verifiable or at least falsifiable by experience; and experience is always of such a type that it could, in principle, have been other than it actually was so that no one could ever know in advance, i.e., before actually having had some particular experience, if the outcome would be one way or another. If, mutatis mutandis, knowledge is not verifiable or falsifiable by experience, then it is not knowledge about anything real—empirical knowledge, that is—but simply knowledge about words, about the use of terms, about signs and transformational rules for them—or analytical knowledge. And it is highly doubtful that analytical knowledge should be ranked as “knowledge” at all.

If one assumes this position, as I will do for the moment, it is not difficult to see how the above arguments could be severely rebuffed. The arguments regarding the impossibility of economic calculation and the cost-raising character of social-democratic or conservative measures necessarily leading to a decline in the production of goods and services and hence to reduced standards of living evidently claimed to be valid a priori, i.e., not falsifiable by any kind of experience, but rather known to be true prior to any later experiences. Now if this were indeed true, then according to the first and central tenet of empiricism-positivism, this argument could not contain any information about reality, but instead would have to be considered idle verbal quibbling—an exercise in tautological transformations of words such as “cost,” “production,” “output of production,” “consumption”—which do not say anything about reality. Hence, empiricism concludes that insofar as reality, i.e., the real consequences of real socialism, is concerned, the arguments presented thus far carry no weight whatsoever. Rather, in order to say anything convincing about socialism, experience and experience alone would have to be the decisive thing to consider.

If this were indeed true (as I will still assume), it would at once dispose of all of the economic arguments against socialism which I have presented as being of a categorical nature. There simply could not be anything categorical about reality. But even then, wouldn’t empiricism-positivism still have to face up to the real experiences with real socialism and wouldn’t the result of this be just as decisive? In the preceding chapters, much more emphasis was placed on logical, principle, categorical (all used synonymously here) reasons directed against socialism’s claims of offering a more promising way to economic prosperity than through capitalism; and experience was cited only loosely in order to illustrate a thesis whose validity could ultimately have been known independent of illustrative experience. Nonetheless, wouldn’t even the somewhat unsystematically cited experience be sufficient to make a case against socialism?

The answer to these questions is a decisive “no.” The second tenet of empiricism-positivism explains why. It formulates the extension or rather the application of the first tenet to the problem of causality and causal ex planation or prediction. To causally explain or predict a real phenomenon is to formulate a statement of either the type “if A, then B” or, should the variables allow quantitative measurement, “if an increase (or decrease) of A, then an increase (or decrease) of B.” As a statement referring to reality (with A and B being real phenomena), its validity can never be established with certainty, i.e., by examination of the proposition alone or of any other proposition from which the one in question could in turn be logically deduced, but will always be and remain hypothetical, depending on the outcome of future experiences which cannot be known in advance. Should experience confirm a hypothetical causal explanation, i.e., should one observe an instance where B indeed followed A, as predicted, this would not prove that the hypothesis is true, since A and B are general, abstract terms (“universals,” as opposed to “proper names”) which refer to events or processes of which there are (or, at least might, in principle, be) an indefinite number of instances, and hence later experiences could still possibly falsify it. And if an experience falsified a hypothesis, i.e., if one observed an instance of A that was not followed by B, this would not be decisive either, as it would still be possible that the hypothetically related phenomena were indeed causally linked and that some other previously neglected and uncontrolled circumstance (“variable”) had simply prevented the hypothesized relationship from being actually observed. A falsification would only prove that the particular hypothesis under investigation was not completely correct as it stood, but rather needed some refinement, i.e., some specification of additional variables which one would have to watch out for and control in order to be able to observe the hypothesized relationship between A and B. But to be sure, a falsification would never prove once and for all that a relationship between some given phenomena did not exist.

Given that this empiricist-positivist position on causal explanation is correct, it is easy to see how socialism could be rescued from empirically justified criticism. Of course, a socialist-empiricist would not deny the facts. He would not argue that there indeed is a lower standard of living in Eastern than in Western Europe, and that increased taxation or a conservative policy of regulations and controls have indeed been found to correlate with a retardation or shrinking in the production of economic wealth. But within the boundaries of his methodology he could perfectly well deny that based on such experiences a principled case against socialism and its claim of offering a more promising path toward prosperity could be formulated. He could, that is to say, play down the (seemingly) falsifying experiences, and any other that might be cited, as merely accidental; as experiences that had been produced by some unfortunately neglected and uncontrolled circumstances which would disappear and indeed turn into its very opposite, revealing the true relationship between socialism and an increased production of social wealth, as soon as these circumstances had been controlled. Even the striking differences in the standard of living between East and West Germany—the example that I stressed so heavily because it most closely resembles that of a controlled social experiment—could thus be explained away: in arguing, for instance, that the higher living standards in the West must be explained not by its more capitalist mode of production, but by the fact that Marshall aid had streamed into West Germany while East Germany had to pay reparations to the Soviet Union; or by the fact that from the very beginning, East Germany encompassed Germany’s less developed, rural, agricultural provinces and so had never had the same starting point; or that in the eastern provinces the tradition of serfdom had been discarded much later than in the western ones and so the mentality of the people was indeed different in both East and West Germany, etc.

In fact, whatever empirical evidence one brings forward against socialism, as soon as one adopts the empiricist-positivist philosophy, i.e., as soon as the idea of formulating a principled case either in favor of or against socialism is dropped as in vain and ill-conceived, and it is instead only admitted that one can, of course, err with respect to the details of some socialist policy plan but would then be flexible enough to amend certain points in one’s policy whenever the outcome was not satisfactory, socialism is made immune to any decisive criticism, because any failure can always be ascribed to some as yet uncontrolled intervening variable. Not even the most perfectly conducted, controlled experiment, it should be noted, could change this situation a bit. It would never be possible to control all variables that might conceivably have some influence on the variable to be explained—for the practical reason that this would involve controlling literally all of the universe, and for the theoretical reason that no one at any point in time could possibly know what all the variables are which make up this universe. This is a question whose answer must permanently remain open to newly discovered and discerned experiences. Hence, the above characterized immunization strategy would work without exception and unfailingly. And since, as we know from the writings of the empiricists themselves, and in particular those of D. Hume, there exists no “band” that one could observe to connect visibly certain variables as causes and effects,⁹⁰ it should be noted that there would be no way whatsoever to exclude any variable as a possible disturbing influence from the outset without indeed trying it out and controlling it. Not even the seemingly most absurd and ridiculous variables, such as, for instance, differences in weather, or a fly passing by in one case but not in the other, could be ruled out in advance; all that could be done would be to point to experience again. (“Flies passing or not passing by never made a difference for the outcome of an experiment.”) But according to the empiricist doctrine itself, this experience, referring as it does only to past instances, would once again not help decide the matter definitively, and a reference to it would only amount to a begging of the question.

No matter what the charges brought against socialism are, then, as long as they are based on empirical evidence the empiricist-socialist could argue that there is no way of knowing in advance what the results of a certain policy scheme will be without actually enacting it and letting experience speak for itself. And whatever the observable results are, the original socialist idea—the “hard-core” of one’s “research programme” as the neo-Popperian philosopher Lakatos would have called it⁹¹—can always be rescued easily by pointing out some previously neglected, more or less plausible variable, whose noncontrol is hypothesized to be responsible for the negative result, with the newly revised hypothesis again needing to be tried out indefinitely, ad infinitum.⁹² Experience only tells us that a particular socialist policy scheme did not reach the goal of producing more wealth; but it can never tell us if a slightly different one will produce any different results, or if it is possible to reach the goal of improving the production of wealth by any socialist policy at all.

I have now reached the point in my argument where I shall challenge the validity of these two central tenets of empiricism-positivism. What is wrong with them, and why cannot even empiricism help save socialism? The answer will be given in three stages. First, I will demonstrate that the empiricist position proves to be self-defeating at closer analysis because it itself must at least implicitly assume and presuppose the existence of non-empirical knowledge as knowledge about reality. This being mainly a destructive task, I will then have to address the question of how it is possible to have or conceive of knowledge that informs about reality, but which is not itself subject to confirmation or falsification by experience. And thirdly, I will show that such knowledge not only is conceivable and must be presupposed but that there are positive instances of it which serve as the firm epistemological foundation on which the economic case against socialism can be and indeed all along has been built.

In spite of the apparent plausibility of empiricism’s central ideas, it might be noted at the very outset that even on the level of intuition things do not seem to be exactly the way empiricism would want them to be. It certainly is not evident that logic, mathematics, geometry, and also certain statements of pure economics, like the law of supply and demand or the quantity theory of money, because they do not allow any falsification by experience, or rather because their validity is independent of experience, do not give us any information about reality but are merely verbal quibble. The opposite seems much more plausible: that the propositions advanced by these disciplines—for instance, a statement of geometry such as “If a straight line S and a circle C have more than one point in common then S has exactly two points in common with C,” or a statement more closely related to the field of action with which I am concerned here, such as “One cannot have his cake and eat it, too”—do in fact inform about reality and inform about what cannot possibly be different in reality at pain of contradiction.⁹³ If I had a cake and ate it, it can be concluded that I do not have it anymore—and this clearly is a conclusion that informs about reality without being falsifiable by experience.

But much more important than intuition, of course, is reflexive analysis, and this will prove the empiricist position to be simply self-defeating. If it were true that empirical knowledge must be falsifiable by experience and that analytical knowledge, which is not so falsifiable, thus cannot contain any empirical knowledge, then what kind of statement is this fundamental statement of empiricism itself? It must again be either analytical or empirical. If analytical, then according to its own doctrine this proposition is nothing but some scribbling on paper, hot air, entirely void of any meaningful content. It is only because the terms used in the statement such as “knowledge,” “experience,” “falsifiable,” etc., have already been given some meaningful interpretation that this might at first be overlooked. But the entire meaninglessness of analytical statements follows conclusively from the empiricist-positivist ideology. Of course, and this is the first self-defeating trap, if this were true, then empiricism could not even say and mean what it seems to say and mean; it would be no more than a rustling of leaves in the wind. To mean anything at all, an interpretation must be given to the terms used, and an interpretation of terms, to be sure, is always (as long as one expression cannot be explained in terms of another one) a practical affair; an affair, that is, in which the usage of a term is practiced and learned with real instances of the concept designated by the term, and by which a term is thus tied to reality.⁹⁴ However, not just any arbitrary interpretation would do: “falsifiable,” for instance, does not mean what one means by “red” or “green.” In order to say what empiricism-positivism evidently wants to say when formulating its basic tenets, the terms must be given the meaning that they actually have for the empiricist as well as for those whom he wants to convince of the appropriateness of his methodology. But if the statement indeed means what we thought it did all along, then it evidently contains information about reality. As a matter of fact it informs us about the fundamental structure of reality: that there is nothing in it that can be known to be true in advance of future confirming or falsifying experiences. And if this proposition now is taken to be analytical, i.e., as a statement that does not allow falsification but whose truth can be established by an analysis of the meanings of the terms used alone, as has been assumed for the moment, then one has no less than a glaring contradiction at hand and empiricism once again proves to be self-defeating.⁹⁵

Hence, it seems that empiricism-positivism would have to choose the other available option and declare its central creed itself to be an empirical statement. But then, clearly, the empiricist position would no longer carry any weight whatsoever: after all, the fundamental proposition of empiricism serving as the basis from which all sorts of rules of correct scientific inquiry are derived could be wrong, and no one could ever be sure if it was or was not so. One could equally well claim the exact opposite and within the confines of empiricism there would be no way of deciding which position was right or wrong. Indeed, if its central tenet were declared an empirical proposition, empiricism would cease to be a methodo-logy—a logic of science—altogether, and would be no more than a completely arbitrary verbal convention for calling certain (arbitrary) ways of dealing with certain statements certain (arbitrary) names. It would be a position void of any justification of why it, rather than any other one, should be adopted.⁹⁶

However, this is not all that can be mustered against empiricism, even if the second available alternative is chosen. Upon closer inspection this escape route leads to another trap of self-defeat. Even if this route were chosen, it can be shown that the empiricist-positivist position must tacitly presuppose the existence of nonempirical knowledge as “real” knowledge. In order to realize this, let it be assumed that a causal explanation relating two or more events has been found to fit one particular instance of experiences regarding such events, and is then applied to a second instance, presumably to undergo some further empirical testing. Now, one should ask oneself what is the presupposition which must be made in order to relate the second instance of experience to the first as either confirming or falsifying it? At first it might seem almost self-evident that if in the second in stance of experience the observations of the first were repeated, this would be a confirmation, and if not, a falsification—and clearly, the empiricist methodology assumes this to be evident, too, and does not require further explanation. But this is not true.⁹⁷ Experience, it should be noted, only reveals that two or more observations regarding the temporal sequence of two or more types of events can be “neutrally” classified as “repetition” or “nonrepetition.” A neutral repetition only becomes a “positive” confirmation and a nonrepetition a “negative” falsification if, independent of what can actually be discovered by experience, it is assumed that there are constant causes which operate in time-invariant ways. If, contrary to this, it is assumed that causes in the course of time might operate sometimes this way and sometimes that way, then these repetitive or nonrepetitive occurrences simply are and remain neutrally registered experiences, completely independent of one another, and are not in any way logically related to each other as confirming or falsifying one another. There is one experience and then there is another, they are the same or they are different, but that is all there is to it; nothing else follows.

Thus, the prerequisite of being able to say “falsify” or “confirm” is the constancy principle: the conviction that observable phenomena are in principle determined by causes that are constant and time-invariant in the way they operate, and that in principle contingency plays no part in the way causes operate. Only if the constancy principle is assumed to be valid does it follow from any failure to reproduce a result that there is something wrong with an original hypothesis; and only then can a successful reproduction indeed be interpreted as a confirmation. For only if two (or more) events are indeed cause and effect and causes operate in a time-invariant way must it be concluded that the functional relationship to be observed between causally related variables must be the same in all actual instances, and that if this is not indeed the case, something must be at fault with the particular specification of causes.

Obviously now, this constancy principle is not itself based on or derived from experience. There is not only no observable link connecting events. Even if such a link existed, experience could not reveal whether or not it was time-invariant. The principle cannot be disproved by experience either, since any event which might appear to disprove it (such as a failure to duplicate some experience) could be interpreted from the outset as if experience had shown here that merely one particular type of event was not the cause of another (otherwise the experience would have been successfully repeated). However, to the extent that experience cannot exclude the possibility that another set of events might actually be found which would turn out to be time-invariant in its way of operating, the validity of the constancy principle cannot be disproved.

Nonetheless, although neither derived from nor disprovable by experience, the constancy principle is nothing less than the logically necessary presupposition for there being experiences which can be regarded as either confirming or falsifying each other (in contrast to isolated, logically unconnected experiences). And hence, since empiricism-positivism assumes the existence of such logically related experiences, it must be concluded that it also implicitly assumes the existence of nonempirical knowledge about reality. It must assume that there are indeed time-invariantly operating causes, and it must assume that this is the case although experience could never possibly prove nor disprove it. Once again, then, empiricism turns out to be an inconsistent, contradictory philosophy.

By now it should be sufficiently clear that aprioristic knowledge must exist, or at least, that empiricism-positivism—the philosophy which is the most skeptical about its possibility—must in fact presuppose its existence. Admittedly, though, the very idea of knowledge as knowledge about real things whose validity can be ascertained independent of experience is a difficult one to grasp—otherwise the overwhelming success of the philosophy of empiricism-positivism in the scientific community and in the opinion of the “educated public” could hardly be explained. Hence, before proceeding to the more concrete task of elucidating the specific aprioristic foundations on which the economic case against socialism rests, it would seem appropriate to make a few rather general comments which should help make it more plausible that there is indeed something like aprioristic knowledge.

It seems to be of great importance to first rid oneself of the notion that aprioristic knowledge has anything to do with “innate ideas” or with “intuitive” knowledge which would not have to be discovered somehow or learned. Innate or not, intuitive or not: these are questions that concern the psychology of knowledge. In comparison, epistemology is concerned exclusively with the question of the validity of knowledge and of how to ascertain validity—and, to be sure, the problem of aprioristic knowledge is solely an epistemological one. Aprioristic knowledge can be, and in fact quite often is, very similar to empirical knowledge from a psychological point of view, in that both types of knowledge must be acquired, discovered, learned. The process of discovering aprioristic knowledge might and very often indeed seems to be even more difficult and painstaking than that of acquiring empirical knowledge, which frequently enough simply seems to press itself onto us without our having done much about it; and also, it might well be the case genetically that the acquisition of aprioristic knowledge requires one’s having previously had some sort of experience. But all this, it should be repeated, does not affect the question of the validation of knowledge, and it is precisely and exclusively in this regard that aprioristic and empirical knowledge differ categorically.⁹⁸

On the positive side, the most important notion for understanding the possibility of a priori knowledge, I submit, is that there are not only nature-given things which one has to learn about through experience, but that there are also artificial, man-made things which may require the existence or use of natural materials, but which to the very extent that they are constructs can nonetheless not only be fully understood in terms of their structure and implications, but which also can be analyzed for the question of whether or not their method of construction can conceivably be altered.⁹⁹

There are three major fields of constructs: language and thought, actions, and fabricated objects, all of which are man-made things. We shall not deal here with fabricated objects but will only mention in passing that Euclidean geometry, for instance, can be conceived of as ideal norms we cannot avoid using in constructing measurement instruments that make empirical measurements of space possible. (In so far, then, Euclidean geometry cannot be said to have been falsified by the theory of relativity; rather, this theory presupposes its validity through the use of its instruments of measuring.)¹⁰⁰ The field of action, as our area of main concern, will be analyzed when the aprioristic foundations of economics are discussed. The first explanation of aprioristic knowledge, then, as knowledge of rules of construction which cannot conceivably be altered, shall be given using the example of language and thought. This is chosen as the starting point, because it is language and thought which one uses in doing what is being done here, that is, in communicating, discussing, and arguing.

As empiricists see it, language is a conventionally accepted system of signs and sign-combinations, which, again by convention, are given some meaning, ultimately by means of ostensive definitions. According to this view, it may seem that although language is an artificial, man-made product, nothing can be known about it a priori. And indeed, there are lots of different languages, all using different signs, and the meaning of the terms used can be assigned and changed arbitrarily, so that everything there is to know about language must, or so it seems, be learned from experience. But this view is incorrect, or at best is only half of the truth. True, any language is a conventional sign system, but what is a convention? Evidently, it cannot be suggested that “convention” in turn be defined conventionally, as that would simply be begging the question. Everything can be called a convention (and, for that matter, a language), but surely not everything that can be called one is in fact a conventional agreement. Saying and being understood in saying “convention is used in such and such a way” presupposes that one already knows what a convention is, as this statement would already have to make use of language as a means of communication. Hence, one is forced to conclude that language is a conventional sign system and as such knowledge about it can only be empirical knowledge. But in order for there to be such a system it must be assumed that every speaker of a language already knows what a convention is, and he must know this not simply in the way he knows that “dog” means dog, but he must know the real, true meaning of convention. As such his knowledge of what a language is must be considered a priori. This insight can be repeated for more particular levels. There are all sorts of specific statements that can be made in a language, and surely experience plays a role here. However, knowing what it means to make a proposition can definitely not be learned from experience, but rather must be presupposed of any speaker of a language. What a proposition is cannot be explained to a speaker by just another statement unless he already knows how to interpret this as a proposition. And the same is true with definitions: it would not do to define “definition” ostensively by pointing to someone who is just pointing out some definition, because just as in the case in which the word “dog” is defined by pointing to a dog, an understanding of the meaning of ostensive definitions must already be presupposed when it is understood that pointing to a dog, accompanied by the sound [dog] means that “dog” means dog, so in the case of “definition.” To define definition ostensively would be entirely meaningless, unless one already knew that the particular sound made was supposed to signify something whose identification should be assisted by pointing, and how then to identify particular objects as instances of general, abstract properties. In short, in order to define any term by convention, a speaker must be assumed to have a priori knowledge of the real meaning—the real definition—of “definition.”¹⁰¹

The knowledge about language, then, that must be considered a priori in that it must be presupposed of any speaker speaking any language, is that of how to make real conventions, how to make a proposition by making a statement (i.e., how to mean something by saying something) and how to make a real definition and identify particular instances of general properties. Any denial of this would be self-refuting, as it would have to be made in a language, making propositions and using definitions. And as any experience is conceptual experience, i.e., experience in terms of some language—and to say that this is not so and mean it would only prove the point as it would have to be cast in a language, too—by knowing this to be true of a language a priori, one would also know an a priori truth about reality: that it is made of particular objects that have abstract properties, i.e., properties of which it is possible to find other instances; that any one object either does or does not have some definite property and so there are facts that can be said to be the case, true or wrong; and also that it cannot be known a priori what all the facts are, except that they indeed also must be facts, i.e., instances of particular abstract properties. And once again, one does not know all this from experience, as experience is only what can appear in the forms just described.¹⁰²

With this in mind we can turn to the field of action in order to prove the specific point that one also has positive, aprioristic knowledge of actions and consequences of actions because actions, too, are man-made constructs which can be fully understood regarding their rules of construction; and that empiricism-positivism cannot—at pain of contradiction—possibly be thought to be weakening or even seriously challenging the economic case against socialism, as this case ultimately rests on such foundations, whereas the empiricist philosophy stands in contradiction to it.

In the first argumentative step I shall demonstrate that the empiricist methodology, contrary to its own claim, cannot possibly apply to actions and thereby reveal a first, albeit rather negative, instance of aprioristic knowledge about actions. Empiricism claims that actions, just as any other phenomenon, can and must be explained by means of causal hypotheses which can be confirmed or refuted by experience. Now if this were the case, then empiricism would be forced to assume (contrary to its own doctrine that there is no a priori knowledge as knowledge about reality) that time- invariantly operating causes with respect to actions exist. One would not know in advance which particular event might be the cause of a particular action—experience would have to reveal this. But in order to proceed the way that empiricism wants us to proceed—to relate different experiences regarding sequences of events as either confirming or falsifying each other, and if falsifying, then responding with a reformulation of the original causal hypothesis—a constancy over time in the operation of causes must be presupposed. However, if this were true, and actions could indeed be conceived as governed by time-invariantly operating causes, what about explaining the explainers, i.e., the persons who carry on the very process of hypothesis creation, of verification and falsification;—all of us, that is, who act the way the empiricists tell us to act? Evidently, to do all this—to assimilate confirming or falsifying experiences, to replace old hypotheses with new ones—one must assumedly be able to learn. However, if one is able to learn from experience, and the empiricist is compelled to admit this, then one cannot know at any given time what one will know at later time and how one will act on the basis of this knowledge. Rather, one can only reconstruct the causes of one’s actions after the event, as one can only explain one’s knowledge after one already possesses it. Thus, the empiricist methodology applied to the field of knowledge and action, which contains knowledge as its necessary ingredient, is simply contradictory—a logical absurdity.¹⁰³ The constancy principle may be correctly assumed within the sphere of natural objects and as such the methodology of empiricism may be applicable there, but with respect to actions, any attempt at causal empirical explanation is logically impossible, and this, which is definitely knowledge about something real, can be known with certainty. Nothing can be known a priori about any particular action; but a priori knowledge exists regarding actions insofar as they are actions at all. It can be known a priori that no action can be conceived of as predictable on the basis of constantly operating causes.

The second insight regarding action is of the same type. I will demonstrate that while actions themselves cannot be conceived of as caused, anything that is an action must presuppose the existence of causality in the physical world in which actions are performed. Causality—which the empiricist-positivist philosophy somehow had to assume existed in order to make its own methodological procedures logically feasible, even though its assumption definitely could not be said to be derived from experience and justified in terms of it—is a category of action, i.e., it is produced or constructed by us in following some procedural rule; and this rule, as it turns out, proves to be necessary in order to act at all. In other words, this rule is such that it cannot conceivably be falsified, as even the attempt to falsify it would have to presuppose it.

After what has been said about causality, it should indeed be easy to see that it is a produced rather than a given feature of reality. One does not experience and learn that there are causes which always operate in the same way and on the basis of which predictions about the future can be made. Rather, one establishes that phenomena have such causes by following a particular type of investigative procedure, by refusing on principle to allow any exceptions, i.e., instances of inconstancy, and by being prepared to deal with them by producing a new causal hypothesis each time any such an apparent inconstancy occurs. But what makes this way of proceeding necessary? Why does one have to act this way? Because behaving this way is what performing intentional actions is; and as long as one acts intentionally, presupposing constantly operating causes is precisely what one does. Intentional acts are characterized by the fact that an actor interferes in his environment and changes certain things, or prevents them from changing, and so diverts the “natural” course of events in order to achieve a preferred result or state of affairs; or should an active interference prove impossible, that he prepares himself for a result he cannot do anything about except anticipate in time, by watching out for temporally prior events which indicate the later result. In any case, in order to produce a result that otherwise would not have happened, or to be able to adapt to an inevitable result that otherwise would have come as a complete surprise, the actor must presuppose constantly operating causes. He would not interfere if he did not assume this would help bring about the desired result; and he would not prepare for and adjust to anything unless he thought the events on whose basis he began his preparations were indeed the constantly operating causal forces that would produce the result in question, and the preparation taken would indeed lead to the goal desired. Of course, an actor could go wrong with respect to his particular assumptions of cause-and-effect relations and a desired result might not come about in spite of the interference, or an anticipated event for which preparations had been made might fail to occur. But no matter what happens in this respect, whether or not the results conform to the expectations, whether or not actions regarding some given result or event are upheld for the future, any action, changed or unchanged, presupposes that there are constantly operating causes even if no particular cause for a particular event can be pre-known to any actor at any time. In fact, disproving that any natural phenomenon is governed by time-invariantly operating causes would require one to show that given phenomenon cannot be anticipated or produced on the basis of antecedent variables. But clearly, trying to prove this would again necessarily presuppose that the occurrence or non-occurrence of the phenomenon under scrutiny could be effected by taking appropriate action and that the phenomenon must thus assumedly be embedded in a network of constantly operating causes. Hence, one is forced to conclude that the validity of the constancy principle cannot be falsified by any action as any action would have to presuppose it.¹⁰⁴ (There is only one way in which it might be said that “experience” could “falsify” the constancy principle: if the physical world were indeed so chaotic that one could no longer act at all, then of course it would not make much sense to speak of a world with constantly operating causes. But then human beings, whose essential characteristic is to act intentionally, would also no longer be the ones who experience this inconstancy. As long as one survives as a human being—and this is what the argument in effect says—the constancy principle must be assumed to be valid a priori, as any action must presuppose it and no experience that anyone could actually have could possibly disprove this.)¹⁰⁵

Implied in the category of causality is that of time. Whenever one produces or prepares for a certain result and thereby categorizes events as causes and effects, one also distinguishes between earlier and later events. And to be sure, this categorization is not simply derived from experience, i.e., the mere observance of things and events. The sequence of experiences as it appears in the temporal order of one’s observations is quite a different thing from the real sequence of events in real time. As a matter of fact, one can observe things in an order that is exactly the opposite of the real temporal order in which they stand to each other. That one knows how to interpret observations in a way that might deviate from and correct on the temporal order in which they were made and can even locate events in objective time requires that the observer be an actor and know what it means to produce or prepare for some result.¹⁰⁶ Only because one is an actor, and experiences are those of an acting person, can events be interpreted as occurring earlier and later. And, one cannot know from experience that experiences must be interpreted with reference to actions, as the performance of any action already presupposes the possession of experiences interpreted this way. No person who did not know what it means to act could ever experience events placed in real time, and hence the meaning of time must be assumed to be known a priori to any actor because of the fact that he is an actor.

Furthermore, actions not only presuppose causality and an objective time order, they also require values. Values, too, are not known to us through experience; rather, the opposite is true. One only experiences things because they are things on which positive or negative value can be placed in the course of action. Only by an actor, that is to say, can things be experienced as value-laden and, even more generally, only because one is an actor does one have conscious experiences at all, as they inform about things which might be valuable for an acting person to know. More precisely: with every action an actor pursues a goal.¹⁰⁷ He wants to produce a definite result or be prepared for a result that he cannot prevent from happening. Whatever the goal of his action (which, of course, one could only know from experience), the fact that it is pursued by an actor reveals that he places value on it. As a matter of fact, it reveals that at the very start of his action he places a relatively higher value on it than on any other goal of action he could think of, otherwise he would have acted differently. Furthermore, since in order to achieve his most highly valued goal any actor must interfere at an earlier point in time or must watch out for an earlier event in order to start preparations for some later occurrence, every action must also employ means (at least those of the actor’s own body and the time absorbed by the interference or the preparations) to produce the desired end. And as these means are assumed to be causally necessary for achieving the valued goal, otherwise the actor would not employ them, value must also be placed on them. Not only the goals, then, have value for an actor, but the means do, too—a value that is derived from that of the desired end, as one could not reach an end without employing some means. In addition, as actions can only be performed sequentially by an actor, every action involves making a choice. It involves taking up that course of action which at the moment of acting promises the most highly valued result to the actor and hence is given preference by him; at the same time it involves excluding other possible actions with expected results of a lesser value. As a consequence of having to choose whenever one acts—of not being able to realize all valued goals simultaneously—the performance of each and every action implies the incurrence of costs. The cost of an action is the price that must be paid for having to prefer one course of action over another, and it amounts to the value attached to the most highly valued goal that cannot be realized or whose realization must now be deferred, because the means necessary to produce it are bound up in the production of another, even more highly valued end. And while this implies that at its starting point every action must be considered to be worth more than its costs and able to secure a profit to the actor, i.e., a result whose value is ranked higher than the costs, every action is also threatened by the possibility of a loss. Such a loss would occur if in retrospect an actor found that—contrary to his own previous expectation—the result in fact had a lower value than that of the relinquished alternative. And just as every action necessarily aims at a profit, the possibility of a loss, too, is a necessary accompaniment to any action. For an actor can always go wrong regarding his causal-technological knowledge, and the results aimed for cannot be produced successfully or the events for which they were produced do not occur; or he can go wrong because every action takes time to complete and the value attached to different goals can change in the meantime, making things less valuable now that earlier appeared to be highly valuable.

All of these categories—values, ends, means, choice, preference, cost, profit and loss—are implied in the concept of action. None of them is derived from experience. Rather, that one is able to interpret experiences in the above categories requires that one already know what it means to act. No one who is not an actor could understand them as they are not “given,” ready to be experienced, but experience is cast in these terms as it is constructed by an actor according to the rules necessary for acting. And to be sure, as actions are real things and one cannot not act—as even the attempt to do so would itself be an action aimed at a goal, requiring means, excluding other courses of action, incurring costs, subjecting the actor to the possibility of not achieving the desired goal and so suffering a loss—the knowledge of what it means to act must be considered knowledge about reality which is a priori. The very possession of it could not be undone or disproved, since this would already presuppose its very existence. As a matter of fact, a situation in which these categories of action would cease to have a real existence could not itself ever be observed, as making an observation is itself an action.¹⁰⁸

Economic analysis, and the economic analysis of socialism in particular, has as its foundation this a priori knowledge of the meaning of action as well as its logical constituents. Essentially, economic analysis consists of: (1) an understanding of the categories of action and an understanding of the meaning of a change in values, costs, technological knowledge, etc.; (2) a description of a situation in which these categories assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with definite goals identified as values and definite things specified as costs; and (3) a deduction of the consequences that result from the performance of some specified action in this situation, or of the consequences that result for an actor if this situation is changed in a specified way. And this deduction must yield a priori-valid conclusions, provided there is no flaw in the very process of deduction and the situation and the change introduced into it being given, and a priori—valid conclusions about reality if the situation and situation—change, as described, can themselves be identified as real, because then their validity would ultimately go back to the indisputable validity of the categories of action.

It is along this methodological path that in the preceding discussion of socialism the conclusion was derived, for instance, that if the labor expended by an actor was not itself his goal of action, but rather only his means of reaching the goal of producing income and if this income then is reduced against his consent—by taxation—then for him the cost of expending labor has been increased, as the value of other, alternative goals that can be pursued by means of his body and time has gone up in relative terms, and hence a reduced incentive to work must result. Along this path, too, the conclusion—as an a priori conclusion—was reached that, for instance, if the actual users of means of production do not have the right to sell them to the highest bidder, then no one can establish the monetary costs involved in producing what is actually produced with them (the monetary value, that is, of the opportunities foregone by not using them differently), and no one can assure any longer that these means are indeed employed in the production of those goods considered to be the most highly valued ones by the actors at the beginning of their productive efforts. Hence a reduced output in terms of purchasing power must ensue.

After this rather lengthy digression into the field of epistemology, let us now return to the discussion of the socialism of social engineering. This digression was necessary in order to refute the claim of empiricism-positivism, which if true would have saved socialism, that nothing categorical can be said against any policy-scheme, as only experience can reveal the real consequences of certain policies. Against this I have pointed out that empiricism clearly seems to contradict intuition. According to intuition, logic is more fundamental than experience and it is also knowledge about real things. Furthermore, empiricism-positivism turns out to be self-contradictory, as it itself must presuppose the existence of a priori knowledge as real knowledge. There indeed exists a stock of positive a priori knowledge which must be presupposed of every experiencing and acting person, because he knows what it means to act, and which cannot possibly be refuted by experience, as the very attempt to do so would itself presuppose the validity of what had been disputed.

The discussion has led us to a conclusion which can be summed up as follows: “Experience does not beat logic, but rather the opposite is true.” Logic improves upon and corrects experience and tells us what kind of experiences we can possibly have and which ones are instead due to a muddied mind, and so would be better labeled “dreams” or “fantasies” rather than as experiences regarding “reality.” With this reassurance about the solidity of the foundations on which the economic case against socialism has been built, a straightforward criticism of the socialism of social engineering is now possible; a criticism which is again a logical one, drawing on a priori knowledge, and demonstrating that the goals pursued by the socialism of social engineering can never be reached by its proposed means, since this would stand in contradiction to such knowledge. The following critique can now be brief, as the ideology of social engineering, apart from its empiricist-positivist methodology which has been proven faulty, is really no different from the other versions of socialism. Hence, the analyses provided in the preceding chapters regarding Marxist, social-democratic and conservative socialism find application here, too.

This becomes clear once the property rules of the socialism of social engineering are stated. First, the user-owners of scarce resources can do whatever they want with them. But secondly, whenever the outcome of this process is not liked by the community of social engineers (people, that is, who are not the user-owners of the things in question and who do not have a contractually acquired title to them), it has the right to interfere with the practices of the actual user-owners and determine the uses of these means, thereby restricting their property rights. Further, the community of social engineers has the right to determine unilaterally what is or is not a preferred outcome, and can thus restrict the property rights of natural owners whenever, wherever, and to the extent that it thinks necessary in order to produce a preferred outcome.

Regarding these property rules, one realizes at once that although socialism of social engineering allows for a gradual implementation of its goals with only a moderate degree of intervention in the property rights of natural owners, since the degree to which their rights can be curtailed is to be determined by society (the social engineers), private ownership is in principle abolished and peoples’ productive enterprises take place under the threat of an ever-increasing or even total expropriation of private owners. In these respects there is no difference whatsoever between social-democratic and conservative socialism and socialism’s socially engineered version. The difference again is reduced to one of social psychology. While Marxist, redistributive, and conservative socialism all want to achieve a general goal determined in advance—a goal of égalité or of the preservation of a given order—the socialism of social engineering does not have any such design. Its idea is one of punctuated, unprincipled intervention; flexible, piece-meal engineering. The engineering socialist is thus seemingly much more open to criticism, changing responses, new ideas—and this attitude certainly appeals to a lot of people who would not willingly subscribe to any of the other forms of socialism. On the other hand, though, and this should be kept in mind as well, there is almost nothing, including even the most ridiculous thing, that some social engineers would not like to try out on their fellowmen, whom they regard as bundles of variables to be technically manipulated like pawns on a chessboard by setting the right stimuli.

In any case, since the socialism of social engineering does not differ in principle from any of the other versions of socialism, in that it implies a redistribution of property titles away from the users and contractors of scarce resources and onto nonusers and noncontractors, it, too, raises the cost of production and so leads to a reduction in the production of wealth; and this is necessarily so and no one need try it out first to reach this conclusion. This general conclusion is true regardless of the specific course social engineering might take. Let us say that the community of social engineers does not approve of some people having a low income and so decides to fix minimum wages above the current market level.¹⁰⁹ Logic tells one that this implies a restriction of the property rights of the employers as well as the employees who are no longer allowed to strike certain kinds of mutually beneficial bargains. The consequence is and must be unemployment. Instead of getting paid at a lower market wage, some people now will not get paid at all, as some employers cannot pay the additional costs or hire as many people as they would be willing to hire at lower costs. The employers will be hurt as they can only employ fewer people and the output of production hence will be lower, in relative terms; and the employees will be hurt, as instead of some income, albeit low, they now have no income. It cannot be stated a priori who of the employees and the employers will suffer most from this, except that it will be those of the former whose specific labor services have a relatively low value on the market, and those of the latter who specifically hire precisely this type of labor. However, knowing from experience, for instance, that low-skilled labor services are particularly frequent among the young, among blacks, among women, among older people who want to reenter the labor force after a longer period of household-work, etc., it can be predicted with certainty that these will be the groups hit the hardest by unemployment. And to be sure, the very fact that the problem which intervention was originally supposed to cure (the low income of some people) is now even worse than before could have been known a priori, independent of any experience! To think that, misled by faulty empiricist methodology, all this first has to be tried out as it otherwise could not have been known is not only scientific humbug; like all acting based on ill-conceived intellectual foundations, it is extremely costly as well.

To look at yet another example, the community of social engineers does not like the fact that rents for houses or apartments are as high as they are, and hence some people are not able to live as comfortably as they think they should. Accordingly, rent-control legislation is passed, establishing maximum rents for certain apartments.¹¹⁰ This is the situation, for instance, in New York City, or on a much grander scale, in all of Italy. Again, without having to wait for the consequences to become real one knows what they will be. The construction of new apartments will decrease, as the returns from investment are now lower. And with respect to old apartments, immediate shortages will appear, as the demand for them, their prices being lower, will rise. Some older apartments might not even be rented out anymore, if the fixed rents are so low that the rent would not even cover the cost of the deterioration that occurs by just living in and using the apartment. Then there would be a tremendous shortage of housing next to thousands of empty apartments (and New York City and Italy provide us with perfect illustrations of this). And there would be no way out of this, as it still would not pay to construct new apartments. In addition, the increased shortages would result in very costly inflexibilities, as people who had happily gotten into one of the low-priced apartments would be increasingly un willing to move out again, in spite of the fact that, for instance, the family size normally changes during the life cycle and so different needs as regards housing emerge, and in spite of the fact that different job opportunities might appear at different places. And so a huge waste of rental space occurs, because old people, for example, who occupy large apartments that were just the right size when the children were still living at home but are much too big now, still will not move into smaller apartments as there are none available; and young families who are in need of larger premises cannot find those either, precisely because such places will not be vacated. Waste also occurs because people do not move to the places where there is the greatest demand for their specific labor services, or they spend large amounts of time commuting to rather distant places, merely because they cannot find a place to live where there is work for them, or they can only find accommodations at a much higher price than their presently fixed low rent. Clearly, the problem that the social engineers wanted to solve by means of introducing rent control legislation is much worse than before and the general standard of living, in relative terms, has declined. Once again, all of this could have been known a priori. For the social engineer, however, misled by an empiricist-positivist methodology which tells him that there is no way of knowing results unless things are actually tried out, this experience will probably only set the stage for the next intervention. Perhaps the results were not exactly as expected because one had forgotten to control some other important variable, and one should now go ahead and find out. But as this chapter has demonstrated, there is a way of knowing in advance that neither the first nor any subsequent acts of intervention will ever reach their goal, as they all imply an interference with the rights of the natural owners of things by nonusers and noncontractors.¹¹¹

In order to understand this, it is only necessary to return to sound economic reasoning; to realize the unique epistemological nature of economics as an aprioristic science of human action that rests on foundations whose very denial must presuppose their validity; and to recognize, in turn, that a science of action grounded in an empiricist-positivist methodology is as ill-founded as the statement that “one can have his cake and eat it, too.”